As 2020 ends, the forecast for 2021 presents many questions. How will COVID-19 continue to affect the market? Is now a good time to invest in property? For landlords navigating the hold on evictions and rent freeze orders across the country, the future seems uncertain. Much of the United States is still rebuilding, but some rental property trends are emerging. Join us below as we examine what rental property trends will stick around and answer some of the questions weighing heavily on landlord’s minds.
How Will Regulations Affect the Rental Market in 2021?
Investors and landlords have become increasingly aware of the government’s influence over the rental market. However, what some may not realize is how that influence will likely continue beyond COVID. Once eviction moratoriums and rent freezes expire, some states are taking measures to intervene further.
For example, a few states are taking measures to extend rent freezes up to a year beyond the final end to COVID-19. Landlords and investors should expect these restrictions to continue.
Rental Property Trends to Look Out for in 2021
COVID-19 continues, but hope remains that things will settle down in 2021. The question remains, what will the real estate market look like on the other side of all that 2020 has dished out. Let’s take a look at the emerging rental property trends investors should keep in mind.
- A Seller’s Market
- An Uncertain Eviction and Foreclosure Future
- A Return to the Suburbs
- Demand for New Construction Despite Rising Costs
- Fix-to-Rent Strategy
- Still Some Interest in Multifamily
A Seller’s Market
Inventory is low and, at least for now, will remain that way. As interest rates stay at near-record lows, demand is far outweighing supply. Consequently, investors are fighting stiff competition on a dwindling number of options. This competition among buyers is driving up selling prices, which cut into an investor’s calculated returns. However, this scenario brings both pros and cons.
Investing in real estate sometimes takes a creative outlook. In addition to running the numbers, investors must see the potential a property offers. As 2021 approaches, the strategy investors develop to find properties is crucial. This includes a focus on canvassing neighborhoods before properties reach MLS.
An Uncertain Eviction and Foreclosure Future
An uncertain future awaits current landlords dealing with missed rent payments and eviction moratoriums. That said, payments for rent and mortgages will eventually need to be caught up. However, with unemployment rates still in double digits, we will likely see a surge in both evictions and foreclosures.
For individuals looking to purchase a rental property, a rise in foreclosures presents an opportunity. On the contrary, investors already in the industry now face challenges navigating eviction proceedings. Additionally, as lost rent continue to add up, maintaining cash flow could prove challenging.
A Return to the Suburbs
COVID-19 changed how many people work, and that is likely to continue. The pandemic is also driving individuals away from overcrowded urban areas. As many workers no longer need to commute, the appeal of suburban life is taking center stage. The suburbs offer added space to accommodate children participating in virtual learning and individuals with the freedom to work from home. According to HousingWire, – the home office is no longer a luxury.
This trend is expected to continue happening in big cities and densely populated urban areas nationwide. Even as unemployment hovers in the double digits, the housing market remains strong. In part, this is due to very low-interest rates and increased demand for single-family homes. However, the market supply is not keeping up with demand.
Demand for New Construction Despite Rising Costs
Many Spring buyers saw building plans halted by the pandemic. The shutdown of many essential services caused major delays in things like permits and inspections. In part, the demand for new construction is fueled by the limited supply of existing homes on the market. Also, experts believe that the pandemic did not destroy the market even with unemployment rates but merely delayed it.
That said, the cost of building a newly constructed house continues to rise. For example, lumber prices are up approximately 130% year over year, which only adds to a buyer’s bottom line. However, the rising prices are not enough to dissuade home buyers. The large surge in families and individuals seeking life in the suburbs is likely to keep the demand high for the foreseeable future.
Recently, investors are also shifting focus towards new construction. The reason? Short supply in the market affects an investor’s ability to build portfolios. The once common cosmetic flips or undervalued distressed property are now much harder to come by. Therefore, savvy investors with experience in managing budgets and contractors view new construction as a way to get the return on investment they need.
Fix-to-Rent Strategy
In the aftermath of the 2008 housing collapse, many aggressive investors took advantage of the influx in foreclosures. It is unlikely 2021 will see the same huge numbers, but investors are gearing up anyway. Investors financially poised to move quickly on deals can still find the right listing for their portfolio. That said, inventory is limited, and investors will need to consider homes that require a bit more work than just a cosmetic refresh.
In 2021, investors with the skills and connections to manage moderate renovation could see the best return. Buying in the suburbs, which was once not as profitable as urban areas, is where the demand is concentrated. So, as home prices continue climbing, expanding what you are willing to take on is key. Therefore, if you have the rehab know-how, and the numbers add up, do not shy away from a fixer-upper.
Still Some Interest in Multifamily
Unemployment and the shift to working from home have indeed affected urban multi-family rental demand. Renters who cannot catch up on rent after the pandemic bring a wave of evictions and subsequent vacancies. Besides that, renters are now seeking extra space in their apartment to accommodate an office or room for children’s studies. However, even with many renters seeking sanctuary in the suburbs, there is always a need for affordable multi-family housing. For investors, this is where significant market analysis is vital.
However, the softening market for multi-family is something landlords, and investors need to prepare for. Increased vacancy and lower demand will see prices drop across the board. So, if you are looking to invest, seek out solid Class B properties that offer the renter value while still providing enough ROI.
Many questions remain in determining if or how quickly multi-family rentals will rebound. Mainly, how will the restaurants, shops, and local businesses that drive the city-dwelling lifestyle bounce back? Since many urban residents choose apartments close to work, entertainment, or activities, continued COVID restrictions may further soften the demand.
Do Rental Property Trends Suggest 2021 the Time to Invest?
Everyone can agree, 2020 has been an unprecedented year. That said, the data affecting rental property trends are continuously changing. So, as you decide your next move as an investor or landlord, watch the evolving market carefully. Additionally, do what you can to prepare for purchase opportunities as they come but make sure there is a healthy emergency fund set aside.
One advantage is as other industries may falter due to COVID, the real estate market is sure to recover. No matter the global situation, individuals will always need a space to call home. Thanks to record low rates, if investors get creative with how they procure listings, the long-term payout is promising.
Owning and investing in rental properties carries some risk at any time, but benefits cannot be overlooked. Let’s go over the basic benefits of rental property ownership.
Benefits of Owning Rental Property
- Ability to Generate Passive Cash Flow – Positive cash flow leads to a good return on investment for owners well prepared for any contingency. Rental properties are also known for the ability to generate passive cash flow. In other words, it is money you do not have to work for actively. That said, day to day running of rentals, just like any business, does need attention. However, with enough positive cash flow, owners can hire professional management to allow more time to find the next great deal!
- Using Tax Benefits to Your Advantage – Real estate investors can utilize several tax incentives to leave extra cash in their pockets. For example, investors can deduct depreciation, interest, insurance, and many more on their year-end taxes.
- Appreciation – When searching for a rental investment property, local appreciation potential is an important factor to consider. If you do sell down the line, appreciation is a great way to cash in!
Added Bonus of Ownership in 2021
- Near Record Low Mortgage Rates – Over the Summer saw rates drop to as low as 2.99%. That said, the uncertainty of the COVID-19 resurgence will keep rates as we head into 2021. These favorable rates are perfect opportunities for both homebuyers and investors. Lower interest for investors contributes to a healthier monthly net income. So, for those on the fence waiting to see if now is the time to invest, 2021 may be the time to make a move.
Concluding Thoughts
Rental property trends come with both pros and cons. However, in 2021, with its low rates and high suburban demand might just be the time to consider investing. Now more than ever, extensive market research is needed on any potential deal. However, all of that is time-consuming for investors on top of running the day-to-day rental business.
That is where a Philadelphia property management company can spell the difference between mediocre and phenomenal success. Bay Property Management Group prides itself on bridging the gap between property owners and tenants. Our experienced staff can guide you through the changing COVID restrictions and effectively market to fill vacancies. Give us a call today for a free, no-obligation rental property analysis to see how rental management can work for you!